Majlis Think Tank Supports Banking Reform Bill

The research arm of the Iranian Parliament has published a first-of-its-kind report detailing six reasons why the Banking Reform Bill–a scheme for undertaking major reforms in the banking sector–should be approved.

In highlighting the strengths of the bill, Majlis Research Center has also exposed some of the bill's faults that have proved controversial since the previous parliament passed a version disapproved by the government and many analysts, reports Banker.ir.

The current bill was backed by 225 lawmakers two months ago and sent to expert commissions for further review.

The MRC cites "a prolonged delay in preparing the reform bill and the necessity of reforming the current banking law", "maximized accordance of the final text with the original draft passed by the previous Majlis" and "correcting  the fundamental problems found in the first draft" as three reasons for giving the thumps-up to the new bill.

Giving due attention to "religious and jurisprudential dimensions of banking operations", along with "standard regulations such as corporate governance, supervision and banking transparency", "lack of necessary and expected reforms in the final draft of the [original] banking bill in line with existing challenges" and "violations of non-unified regulations in the banking sector", was the other main reason.

The Banking Reform Bill defines the duties of banks and non-bank credit institutions and decrees for which they must obtain working license from the CBI. It explains all banking operations and services, as well as regulations for the establishment of branches pertaining to foreign banks, and sets limits to their investments.

The bill also obliges credit institutions to provide information, puts in place a professional set of criteria for choosing new top-tier executives and board members, and makes provision for setting up internal risk and auditing committees.

Defining banking contracts and the legal status of the newly-formed Association of Banks, launching credit rating institutions and detailing lending and capital adequacy capacities are among the other articles of the bill.

Mohammad Reza Pour-Ebrahimi, the head of Majlis Economic Commission, announced in late October that the bill will be finalized in the parliament before the end of the current fiscal year in March 2017.

Tackling the Weaknesses

On why the banking laws of Iran need to be reformed, the think tank first refers to the fact that decades have passed since the Usury-Free Banking Bill became law, but it has not been revised since.

The other reason, notes the research center, is that there are too many regulations regarding the duties of banks, but these regulations are not unified.

The MRC says the fact that comprehensive attention has not been paid to "capital market replacing banking services" and the "ambiguity in the financial structure of the banks" are among weaknesses of the new bill.

Furthermore, the framework of the activities of Deposit Guarantee Fund is not complete in the bill and there is dissension in the process of setting interest rates, the think tank said.

Deposit Guarantee Fund is a form of  deposit insurance implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due. Deposit insurance systems are one component of a financial system safety net that promotes financial stability.

"The text has problems, which require the formation of expert panels with banking pundits, the Central Bank of Iran, the Ministry of Economic Affairs and Finance and other relevant bodies in order to correct them and create unity in reforming regulations," says the report.